Cayman Islands Government Considers Introduction Of Income Tax

Caymannetnews

30 July 2001

This story is reproduced by kind permission of Cayman Net News at: http://www.caymannetnews.com

In an effort to bail itself out of a financially strapped situation it has been suggested that the Government of the Cayman Islands should increase charges for services which traditionally carried a fee, and introduction of personal income tax.

Cayman Net News has learnt that owing to a downturn in the economy, which resulted from a dominoes effect initiated by a slump in the United States, it has been suggested in political circles that in order to maintain its current level of services the revenue base must be broadened.

In a document which has been in circulation and much talked about over the past few weeks, a discussion paper entitled "The Medium-Term Financial Strategy (MTFS), 2000-2008", there are suggestions that the administration is projecting another tough year if revenue enhancement measures are not taken to lift the country out of the large fiscal deficit of year 2000 and the one being recorded this year. An option is a rollback in spending but government thinks this could have too negative an effect on the nation.

Efforts to identify the author(s) of this document have not been successful. However, it is believed that it was prepared as "A Discussion Paper" by well connected politicians.

"It should be recognised that there is a limit to the degree to which government can institute spending cuts without reducing the level of services. If a high level of services is to be maintained, the government must be able to mobilise its internal resources for financing these," read the unsigned document.

Speculation about introduction of this new taxation has been making the rounds for some time and Cayman Net News after considerable study of the draft document, and concerns by business leaders, decided to report on information contained in the document in the absence of any denial of its source.

This newspaper was unable to contact a senior government official who would comment for the record on whether the people of the Cayman Islands will for the first time be saddled with an income tax.

"Large fiscal deficits in 2000 and 2001 and rapidly rising debt pose serious problems for the future fiscal sustainability of the islands. Spending has been rapid in all categories and out of line with revenue growth.

Difficulties exist in raising revenue, mainly because the tax base is narrow and inelastic but also because it is vulnerable to external conditions," the document read.

According to the document, there are two scenarios for the future. One of them could be no policy changes, limited expenditure growth and no revenue measures which can result in fiscal balances of -$19.4 million, -$16.5 million, and -$12.0 million respectively for the years 2002 to 2004.

The other proposes some policy changes ­ presumably involving introduction of income tax ­ that would lead to higher expenditure growth in 2003 to 2004 with revenue measures of $17 million to $19 million in 2003 that would result in fiscal balances of -$15.9 million, $1.9 million and $5.9 million respectively for the years 2002 to 2004.

In spite of the fact that the second scenario, with its policy changes, is projected to put government in the black by 2004, any of the two strategies ­ once proven true ­ should take this country from what appears to be a freefall into debt.

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